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Introduction

It is easy to think about the present without considering the future. Consumers want more

goods and services to improve their standard of living. The problem is they make choices

about goods and services that have long-term consequences for the environment. In our

modern world, organisations need to show responsibility. This means that they use resources

efficiently, do not harm the environment and consider how what they do affects the ability of

future generations to meet their needs.

IKEA aims to be a responsible organisation. It sells low-price home furnishing products

around the world. These include furniture and accessories for kitchens, bedrooms, livingrooms, bathrooms and childrens rooms. IKEA now has stores in 36 countries around the

world. It has come a long way in its 60 years of business.

The direction for the organisation is provided by itsvision. This acts as a guide for

everybody within and outside the organisation about what IKEA wants to achieve. IKEAs

vision is To create a better everyday life for the many people. To meet this vision IKEA

provides many well-designed, functional products for the home. It prices its products low so

that as many people as possible can afford to buy them.

However, in creating low prices IKEA is not willing to sacrifice its principles. Low price but

not at any price is what IKEA says. This means it wants its business to be sustainable.

IKEA supplies goods and services to individuals in a way that has an overall beneficial effect on

people and the environment. Customers all over the world have responded positively to IKEAs

approach. This is evident in its increasing sales. In 2006 IKEA had a group turnover of nearly

18 billion euros.

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Building a sustainable supply chain

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IKEA

CURRICULUM TOPICS

Supply chain

Primary sector of industry

Secondary sector of industry

Tertiary sector of industry

GLOSSARY

Vision: the setting out of a

pathway or picture that identifies

what leaders of an organisation

wish it to become.

Sustainable: the ability to provide

goods and services for consumers

now, without damaging the ability

of future generations to meet their

needs.

Turnover: sales of goods and/or

services.

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Sectors of industry and sustainable supply chains

When consumers go to a retailer like IKEA, they will be looking at the different ranges of

products and how they are presented. They may also look for quality customer service.

However, consumers may not be aware that before products reach them, they must move

from being raw materials through a variety of stages to become finished products suitable for

sale. This is known as the supply chain.

The supply chain involves a flow of production and processes through each of the three

industrial sectors:

IKEA takes its responsibilities seriously and organises its operations in order to have a positive

effect upon the environment.

It aims that all the products and materials it takes from the primary sector do not harm the

environment.

Its products are manufactured in a responsible way.

The following sections look in detail how IKEA has achieved its aim to be a responsible

business in each of the three sectors of the supply chain.

The primary sector

The primary sector involves the development of the raw materials. IKEA is not a primary sector

organisation but it needs raw materials to develop its products. It therefore works closely with

primary sector suppliers to ensure a sustainable impact on the people and the environment in

which it operates.

IKEA designs its own products. Low price is one of the main factors that IKEA considers in

producing well designed, functional home furnishings available to everyone. At the design

stage, IKEA checks that products meet strict requirements for function, efficient distribution,

quality and impact on the environment.

IKEA buys products from more than 1,300 suppliers in 50 countries. It uses a number of

trading service offices across the world. They negotiate prices with suppliers, check the quality

of materials and analyse the environmental impacts that occur through the supply chain. They

also keep an eye on social and working conditions at suppliers.

IKEA uses a tool - the e-Wheel - to evaluate the

environmental impact of its products. The e-Wheel

helps IKEA to analyse the four stages within the life

of a product. This also helps suppliers improve

their understanding of the environmental impact of

the products they are supplying.

Approximately 50% of IKEAs 9,500 products

are made from wood or wood fibres. This is a

good resource as long as it comes from

sustainable sources. It can be recycled and is

a renewable resource.

GLOSSARY

Consumers: purchasers and

users of the products.

Retailer: organisation involved in

providing activities related to

selling goods or providing services

for the final consumer.

Customer service: range of

activities provided by a retailer

designed to meet the needs of

customers.

Supply chain: the flow of goods,

materials and services from raw

materials through to a final

product.

Recycled: the recovery ofmaterials from an old product

which are used to make a new

product.

Renewable: materials that can

be replaced or replenished.

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IKEA creates many design solutions to minimise the use of materials. For example:

some tables are made out of recycled plastic

some rugs are made of material clippings that would otherwise be wasted

products such as water cans are designed to be stacked - this means that more can be

transported in each load, reducing the number of lorry journeys and therefore lowering fuel costs.

Each of these ideas helps IKEAs products to be more sustainable and reduce the impact on

the environment.

A key part of IKEAs success is due to its communications with materials suppliers and

manufacturers. During manufacturing IKEA specifies to its producers that waste should be

avoided. Where waste does occur IKEA encourages suppliers to try to use it in the

manufacture of other products. IKEA has a code of conduct called the IKEA Way of

Purchasing Home Furnishing Products (IWAY). This contains minimum rules and guidelines

that help manufacturers to reduce the impact of their activities on the environment. The IWAY

code complies with international legislation.

A product in use should not have a harmful effect upon consumers or their environment. For

example, it should not cause allergies. If it uses energy, it should do so efficiently. When a

product comes to the end of its useful life, it should be possible to reclaim or recycle the materials

that make up the product. Such materials can then be re-used for making other products.

The secondary sectorManufacturers within the secondary sector create IKEA products from raw materials. As products

move through the supply chain, the process ofvalue-added takes place.

IKEA designs many of its products so that the smallest amount of resources can make the best

products. For example, IKEA saves on resources by using hollow legs in furniture (e.g. the OGLA

dining chair). Another example is by using a honeycomb-paper filling material instead of solid

wood for the inside of table tops (e.g. the LACK series).

As manufacturers or suppliers add value to products, the IWAY code of practice identifies

IKEAs minimum requirements. The IWAY code of practice expects suppliers to:

follow national and international laws

not use child labour

not use woods and glues from non-sustainable forests

reduce their waste and emissions

contribute to recycling

follow health and safety requirements

care for the environment

take care of their employees.

The application of the code raises standards. Each of the requirements within the code of

conduct helps to develop sustainable business activities. They have a positive impact on the

business environment in which the suppliers operate. They also improve the experience of people

working for those businesses. To monitor suppliers, IKEA regularly carries out an IWAY audit.

This involves talking to employees and inspecting documents and records. IKEA visits suppliers

on-site on a number of occasions to ensure that they are following the code of conduct.

The code of conduct for suppliers and the work with other organisations underlines IKEAs

commitment to low price but not at any price.Although IKEA wants its customers to enjoy

low prices, this should not happen at the expense of its business principles.

To support sustainable partnerships with suppliers, IKEA works with other organisations. In

2000 IKEA formed a partnership with UNICEF to work on a community programme in

Northern India. The aim of the work was to prevent child labour by raising awareness and

addressing the root causes.

IKEA has also formed a partnership with the World Wildlife Fund (WWF). IKEA and WWF have

committed themselves to promoting the sustainable use of natural resources. This helps to

ensure that forests can be used both now and in the future.

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GLOSSARY

Code of conduct: guidelines

that dictate how a supplier should

act.

Legislation: processes that

create laws.

Value-added: stages within the

supply chain that add to or change

a product increasing the difference

between the value of the product

and the value of its inputs.

Audit: analysing documentation

and records.

Business principles: standards

set by companies that guide how

they behave.

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For example, IKEA and WWF actions have led to:

a series of training courses for people in Russia, Bulgaria, Romania and China on

responsible forest management

the development of forestry plans in China

demonstrations to managers in Latvia on the benefits of responsible forestry.

All these projects show IKEAs commitment to supporting sustainable practices.

The tertiary sector

Businesses in the tertiary sector provide a service, such as banking, transportation or retailing.

They do not extract the raw materials or make products themselves. 11% of businesses within

the UK are retailers. Retailing turnover in the UK was more than 250 billion in 2006. In the

tertiary sector, IKEAs retail stores add value to manufactured goods by providing a form of

shopping different to the usual high-street experience. IKEA has more than 260 stores in over

36 countries. These meet the needs of consumers in a number of different ways:

Each IKEA store is large and holds more than 9,500 products giving lots of choice.

Within each store, there are a number of realistic room settings that enable customers to

see what the products would look like in their own homes.

The IKEA store is built on a concept of you do half, we do halftogether we save

money. This refers to, for example, the customer assembling furniture at home.

Customers handpick products themselves using trolleys.

IKEA provides catalogues and home delivery to save customers time.

IKEA stores have restaurants that provide Swedish dishes alongside local food choices.

To make its activities more sustainable, IKEA has set up many local UK initiatives:

In 2006 IKEA UK recycled more than 70% of its waste products. Its goal is to recycle 90%

of materials.

To reduce environmental impact, in 2006 IKEA UK started to charge for carrier bags. This

reduced the use of carrier bags by 95%. In June 2007 IKEA UK removed carrier bags from

its stores completely.

In December 2006 IKEA UK gave a brand-new folding bike to each of its 9,000

employees. It also gave subsidised travel tickets to encourage them to travel to and from

work on public transport.

IKEA UK has provided low-energy light bulbs to its entire UK workforce and switched itsfleet of company cars to low-emission hybrid models.

Conclusion

IKEAs long-term ambition is to become the leading home furnishing company. However, for

IKEA, getting there is not simply about developing profitability and market share. As a

global organisation IKEA has chosen to undertake a leadership role in creating a sustainable

way of working. It has educated suppliers to understand how and why sustainable production

is vital. This has helped IKEA differentiate itself from its competitors. Consumers are made

aware of IKEAs commitment to sustainability through its involvement with many other

organisations such as the WWF and UNICEF. IKEA is now considered by both suppliers and

consumers to be a responsible company that they can trust.

Questions

1. Using the case study, provide two examples of sustainable activities.

2. Explain how each sector of industry is linked together within a supply chain.

3. Describe how IKEA influences all elements of its

supply chain to adopt sustainable practices.

4. Evaluate and discuss the effect that IKEAs

sustainable practices are likely to have upon the

furnishing industry over the longer term.

GLOSSARY

Market share: total share of all

products within a product category

or industry.

Differentiate: to emphasise the

differences between the activities of

one organisation and another.

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